The New Tech Bubble Is Initial Coin Offering

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When Bancor launched its initial coin offering (ICO) on June 12, it raised a new record for such an event: 153 million USD worth of ether (Ethereum’s cryptocurrency) was snapped up in a matter of three hours. Bancor promises a technology quite revolutionary, based on Ethereum, that smart contracts built directly into the blockchain that does away with a middleman during various transactions and contractual exchanges.

To explain it in plain language, it’s as if a person sent some euros to a business partner’s dollar-based bank account across the world who would receive the amount in a then-current exchange rate without the banks participating on either side of the transaction and AFTER certain prearranged and mutually agreed conditions are met. Ergo: contract, payment, wire transfer and currency exchange all bundled into a single transaction but without lawyers, banks and their fees.

This is just another example of the budding new technology — blockchain — that promises to reorder just about every facets of our daily life in the coming decades, similarly to the disruptions and core changes the internet has brought us from the 1990s to the 2010s. Yet, the uncanny similarities also bring up the cautionary tale of the dotcom bubble that investors of big and small had the misfortune of experiencing approximately between ’99 and ’01.

Bitcoin, Litecoin, Ethereum, Filecoin and many other blockchain-based devs can be almost interchangeably used for the thousands of e-businesses launched in the late nineties. Many of them became spectacular successes that are now an integral part of our everyday life, such as Google, Amazon, PayPal, Netflix, Facebook, and others. But the likes of E-Toy, Pets.com, Webvan had their values shut up into the stratosphere for perhaps a year or so, only to disappear and take hundreds of millions of dollars with them as they simply evaporated. And even the names like Yahoo, MySpace, AOL and Napster that had been dominant players for about a decade or so, literally or virtually became gradually irrelevant as their competing brethren (Google, Facebook, and BitTorrent) evolved and managed to dominate today’s tech world.

So what’s the takeaway message in this new era of the blockchain-fueled goldrush? The tech might indeed be revolutionary but, with a handful of exception, dominant players are most likely will not appear for several years. And even if they did, most of them will fail and fail just as suddenly as spectacularly — swallowing up hundreds of millions in mostly small investors’ real money. Investors of all walks of life want to capitalize on unicorns, and perhaps it may come as news to some, but unicorns aren’t real and sound business principles still must govern revolutionary tech ICOs just as much as the older and later successful IPOs have been founded upon and consequently operated by.

Of course, when somebody bought a few hundred Google shares for $85 in 2004, the person can claim to be pretty happy (and smart) with today’s returns. Not so much of the investors of Pet.com.